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CEATS, Inc. v. Continental Airlines, Inc.

United States Court of Appeals, Federal Circuit

June 24, 2014

CEATS, INC., Plaintiff-Appellant,
v.
CONTINENTAL AIRLINES, INC., ALASKA AIRLINES, INC., HORIZON AIR INDUSTRIES, INC., DELTA AIR LINES, INC., JETBLUE AIRWAYS CORPORATION, UNITED AIR LINES, INC., VIRGIN AMERICA, INC., U.S. AIRWAYS, INC., TICKETMASTER, LLC, TICKETSNOW.COM, INC., AND LIVE NATION WORLDWIDE, INC., Defendants-Appellees, AND AIRTRAN AIRWAYS, INC., Defendant

Petition for certiorari filed at, 12/04/2014

Appeal from the United States District Court for the Eastern District of Texas in No. 10-CV-120, Judge Michael H. Schneider.

DEAN A. DICKIE, Miller, Canfield, Paddock, and Stone P.L.C., of Chicago, Illinois, argued for plaintiff-appellant. With him on the brief was RYAN C. WILLIAMS. Of counsel on the brief were GEORGE L. HAMPTON IV and COLIN C. HOLLEY, HamptonHolley LLP, of Corona del Mar, California.

MARK A. LEMLEY, Durie Tangri LLP, of San Francisco, California, argued for defendants-appellees. With him on the brief were CLEMENT S. ROBERTS and ZAC A. COX.

Before PROST,[*] Chief Judge, RADER,[**] and O'MALLEY, Circuit Judges.

OPINION

Page 1357

O'MALLEY, Circuit Judge.

CEATS, Inc. (" CEATS" ) brought this patent infringement suit against Continental Airlines, Inc.; Alaska Airlines, Inc.; Horizon Air Industries, Inc.; Delta Airlines, Inc.; Jetblue Airways Corp.; United Airlines, Inc.; Virgin America, Inc.; U.S. Airways, Inc.; Ticketmaster, LLC.; Ticketsnow.com, Inc.; Live Nation Worldwide, Inc.; and Airtran Airways, Inc. (collectively, " Continental" ) in the United States District Court for the Eastern District of Texas. After the parties failed to reach a settlement during court ordered mediation, the case went to trial where a jury found that CEATS's patents were infringed, but

Page 1358

invalid. We affirmed the jury's finding of invalidity in a prior appeal. CEATS, Inc. v. Continental Airlines, Inc. (" CEATS I" ), 526 F.App'x 966 (Fed. Cir. Apr. 26, 2013).

While its first appeal was pending, CEATS filed a motion for relief from the judgment pursuant to Federal Rule of Civil Procedure 60(b) (2012) (" Rule 60(b)" ) based on an alleged relationship between the court-appointed mediator and the law firm representing most of the accused infringers. This alleged relationship was brought to light in an unrelated case (" the Karlseng litigation" ). After we affirmed the invalidity of CEATS's patents in CEATS I, the district court denied CEATS's Rule 60(b) motion. This appeal followed.

Although we disagree with the district court's finding that the mediator had no duty to disclose his dealings with one of the firms involved in the litigation, we none-theless agree that relief from judgment under Rule 60(b) was not warranted. See CEATS, Inc. v. Continental Airlines (" Rule 60(b) Order" ), Inc., No. 6:10-cv-120, *47 (E.D. Tex. June 28, 2013). Therefore, we affirm.

I. Background

A. The District Court Trial and Mediation

On April 5, 2010, CEATS sued Continental in the United States District Court for the Eastern District of Texas for infringement of four patents. The district court ordered the parties to participate in mediation and appointed former Magistrate Judge Robert Faulkner as the mediator on September 28, 2010. The parties conducted two mediation sessions before Faulkner--one on June 21, 2011 and another on June 30, 2011.[1] Because the parties failed to reach a settlement during mediation, the matter proceeded to trial. Thomas Melsheimer, a partner at Fish & Richardson P.C. (" Fish" ), served as lead trial counsel. Fish represented some, but not all, of the accused infringers before the trial court. During the 8-day jury trial, the parties conducted further mediation sessions, but again failed to reach a settlement. On March 21, 2012, the jury found CEATS's patents infringed, but invalid.

B. The Karlseng Litigation

In an unrelated case that began three years before CEATS filed its complaint in this case, Fish represented a party in a partnership dispute before a Texas state court. After the parties agreed to arbitration, the state court appointed Faulkner to serve as the Judicial Arbitration and Mediation Service (" JAMS" ) arbitrator. See Karlseng v. Cooke (" Karlseng I " ), 286 S.W.3d 51, 53 (Tex.App. 2009). Pursuant to JAMS rules, Faulkner disclosed that he previously had participated in arbitrations and mediations with the named Fish attorneys, but disclosed no other contacts with them. Four days after this disclosure, Brett Johnson, a partner at Fish, made his first appearance in the case. Faulkner made no changes to his general disclosure form when Johnson entered his appearance. See id. During the arbitration, Faulkner also acted as if he had not met

Page 1359

Johnson previously. In January 2008, Faulkner issued a ruling in favor of Fish's client for $22 million, including $6 million in attorney's fees. After learning that Faulkner and Johnson were, in fact, previously acquainted, opposing counsel asked to conduct discovery regarding the nature of their relationship. The state court denied that request and confirmed the award on February 22, 2008. See id. at 54.

On appeal, the Texas appellate court found that the district court abused its discretion by refusing to grant a continuance to conduct discovery because there was sufficient evidence of a prior relationship between Faulkner and Johnson to warrant further investigation. Id. at 57. Because the opposing party had not been given adequate opportunity to investigate--e.g., to seek the testimony of Faulkner and Johnson--on April 21, 2009, the appellate court vacated the order confirming the arbitration award. The court remanded the case for the trial court to allow further discovery regarding the Faulkner-Johnson relationship. See id. at 57-58.

After remand, Faulkner and Johnson were both deposed. See Karlseng v. Cooke (" Karlseng II" ), 346 S.W.3d 85, 87-88 (Tex.App. 2011). Fish continued representing its client during remand. Despite this extra discovery and what it revealed, the trial court again confirmed the award on June 30, 2009, nine months before CEATS filed its complaint in this case. The state court opponent appealed for the second time. On November 30, 2010--two months after Faulkner was appointed mediator in this case and six months before the first mediation--Melsheimer argued before the state court of appeals on behalf of Fish's client, urging that the court uphold the arbitration award.[2] In doing so, Melsheimer defended Faulkner's decision not to disclose his relationship with Johnson. On June 28, 2011--between the first two mediation sessions in this case--the Texas court of appeals issued its decision vacating the arbitration award, finding that Faulkner's failure to disclose his relationship with Johnson violated his obligations as an arbitrator and tainted the arbitration award. In its opinion, the appeals court detailed both an enduring social relationship between Faulkner and Johnson, which it said included expensive outings and gifts, and an active business relationship between Faulkner and the Fish firm. See id. at 87-94.

On May 23, 2012, Faulkner was added as a co-defendant with Fish, Johnson, and others in a state court action. The complaint sought damages for breach of contract and fraud, alleging that Faulkner, Johnson, Fish, and the client breached the arbitration agreement and fraudulently concealed the Faulkner-Johnson-Fish relationship. See id. at 92.

c. Post-Trial Activity

On March 27, 2012, the district court entered final judgment in favor of Continental based on the jury's finding of invalidity. On May 24, 2012, CEATS claims to have first found out about the Karlseng litigation because of a news article related to the suit against Faulkner and Fish. After the district court denied numerous post-trial motions, CEATS filed its notice of appeal of the ...


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